Little threat to Northern Ireland in UK funding reform

The Barnett formula for allocating public spending to UK devolved bodies should be scrapped says an influential Lords Committee. Funding should be removed from the Treasury and handed over to an independent UK Funding Commission. Scotland and England now have “markedly lower” overall needs than Wales and Northern Ireland, and a new system ought to reflect it, the peers’ report said. The heat is on Scotland where the report will make political waves in the debate over wider tax raising powers and independence. But Northern Ireland and Wales might even do better under a needs based system. Economist John Simpson points out that:

Northern Ireland spends more spend more per head than its population share – it makes up 2.8% of the UK population, but receives 3.5% of overall spending, However, when it comes to the basics of education and health – which are the very big budget items – we are only fractionally above average. “Should we have a flat rate of spending for every person in the UK? No, because that doesn’t take account, for example, of whether there are more young or old people. In Northern Ireland, we’ve got more young people. Education is very expensive, so should we therefore have a formula which takes account of this”

Possibly, but only if education spending becomes more efficient through for example, the reform of secondary education, I suggest. Treating England as a single entity wont wash. There are poorer English sub-regions than NI overall, as the Liverpool Daily Post and the Newcastle-based Northern Echo remind us. During the recession its hard to see any government frightening the horses with a wholesale sale review. At the Constitution Unit our view is that despite all the criticisms, the Barnett formula wont just lie down and die. It will remain in place until we have a government with the courage and determination to put something else in its place. So this report challenges all parties to come up with an alternative which is workable and fair.

The Lords report presents challenges to all the parties:

To the SNP, whose policy is total fiscal autonomy (including Scottish oil revenues). No UK government will agree to this. Are the SNP willing to compromise, if the alternative is a big cut in UK government funding for Scotland?

To the Conservatives, who want to reduce the UK governments block grant to Scotland, but are uncertain about allowing Scotland greater fiscal autonomy

To Labour, who established the Calman Commission in Scotland, but may not have the courage to implement its recommendations against Treasury advice.

The ‘threat’ is entirely dependent on what the new formula is, just because one particular need would suit us does not mean it will end up with suitable weighting in a new formula. Barnett undoubtedly has its flaws but arriving at a new formula will most likely prove the old adage of the devil being in the detail.

Of course the “funding” is under threat. There will be less money overall so there will be less “funding” for Northern Ireland because the overall pot will be smaller.

In the end of the day, it’s the regions with the most fiscal autonomy and greatest capacity for wealth which will prosper. They are also the regions which will be protected most.

Northern Ireland has pretty well no fiscal autonomy and very poor wealth generation. It will suffer as a result.

In case anyone hadn’t noticed, it has completely failed to close the GDP per capita gap with Great Britain in the “boom” times since 1998 and it certainly won’t do so in the next decade as the purse strings are tightened.